Goal Setting Works
Posted on July 5, 2005 20 Comments
Holy crap. Goal setting works.
I decided to do a mid-year status check on my financials today because I felt pretty down on my budgeting self. I’m tired of saving with no break. Tired of religiously checking my online statements. Tired of no vacations. Tired of being so “good.”
I’m young. I want to go out and have fun and travel to Europe and not work until 8:00 p.m. every night and then spend all weekend stressing about work. I want to be happy and carefree.
Seeking motivation as I head back for another stressful week of July work, I decided to check my mid-year progress against financial goals that I set for myself in January.
Those modest goals were
- Reduce my student loans to $10,500
- Increase my savings account to $5,000
- Continue to budget wisely, including 401K contributions
I haven’t actively kept up with my progress to date. In January I simply budgeted what to spend per month, what to save and where to keep the savings. Now after six months, I revisited those goals.
Here’s my progress
- Student loans total $10,590
- Savings account exceeds $4,300
- I’ve increased contributions to my 401K and my savings account throughout the year
Without realizing it, I’m ahead of my goals. Although I don’t feel tremendously better about being stuck at work during my favorite season, I do feel compelled to continue my plan (and less drawn to, say, redecorate my apartment or buy a plane ticket to Spain).
Also, perhaps I’ll set a new savings goal this year, allowing myself a small vacation if I reach a certain point that exceeds my original goal set in January. This way I can work towards a short-term reward, easier to see (and reach) than my long-term vision.
Hey, it works for fitness, right?
If you have any ideas or examples for using short-term goal setting to reach long-term financial goals, please share them with us. I’d love to learn more.
Note:
If you have a moment, visit All Things Financial. The site is hosting this week’s Carnival of Personal Finance, with lots of great resources to personal finance writers on the Web. Plus, Jeff, the author posting the blog, sent me a really nice note and is always very helpful. Visit his site if you have time.
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July 5th, 2005 @ 12:27 pm
Goal setting works tremendously, specially if you are a disciplined person. If you need a little more discipline, asking your family to hold you accountable (nag you if you don’t) for the goals you set also helps.
Vacation time and money are part of the economic goals I set every year. I also set time and money goals for home improvement.
Money and Investing
July 5th, 2005 @ 11:35 pm
Your right on track with the small goal seting. I’m about $24,000 in debt and need to start small or I wont do it at all. The $24,000 includes a $13,000 truck. But anyways I’m in the army and will retire in about 11 years at the age of 39 and I’d really love to retire that early so I need to come up with the other 50% for retirement. Well what I’m getting at is sites like yours is helping me get to that goal. I’d love to start a personal finance and debt reduction blog but dont really know where to start or if people would read it. So I will stick to my personal blog for now till i figure it out.
July 6th, 2005 @ 7:42 am
With $5,000 in a savings account, you might think about moving some of the money to a money market account, a mutual fund, or a Treasury bond. Reading your post about your 401k distribution, it seems you don’t like taking on much risk while investing, which is completely understandable. Treasury bonds, however, are backed by the full faith of the government, and can basically be considered no-risk.
The whole point of all of this is that in a savings account, your money just sits there earning very little interest. A money market account (extremely low risk) gains more interest while allowing you to write checks as if it were a checking account. A Treasury bond can be purchased and held for up to 30 years, while paying interest in the meantime. Bottom line, you want to get your money to start working for you instead of the other way around, and you can do this with very little risk, even though it seems daunting at first.
Sorry for the long comment, but I thought it was important. Oh, and thanks for the link on the side
Jeff
The Road to Rich
July 6th, 2005 @ 3:46 pm
Thanks so much Jeff! I actually wanted to develop a stable cushion for myself (enough to live jobless for 3 months just in case) before investing any money…which I have yet to learn about (and blog about, of course). That’s phase two of the plan. I had some money tied up in a CD last year, but my savings account earns the same interest! Will definitely be investigating, and investing, more.
July 6th, 2005 @ 5:50 pm
Nicole:
I do advocate for having some small savings on a Savings or Checking Accounts, for quick emergencies. I do have them, specially to pay this and next month’s expenses.
However, it is always good to think about the options. After all, what happens if they never “fire you” out of your work (or never have a huge emergency)? You would have missed a lot of interest along the way.
There are some savings and investment vehicles that do not “tie up” your money.
A CD for example: You can get the money back with some penalty (usually 6 mo interest). ING Direct, for example, offers 5 year CD with 4.15%. The savings account they offer yields 3.0%.
Lets say you invest a $10,000 on the CD instead of placing it on the account.
a) If you don’t get fired or have a big emergency in 5 years, you will earn 1.15% more interest. (or about $660 more – compounding).
b) If you do get fired two years from now (or have an emergency) the extra two years worth of 1.15% interest will compensate for the 6 mo penalty — You would break even.
c) If you get fired (or have an emergency) immediately after you get the CD you would have lost $200.70. Not a big loss any way – out of 10,000 that is it.
If that is not enough to convince you… think about inflation and taxes. A low yield may be making you LOOSE money. Inflation may be anywhere between 2.5 and 4.0 this year (depending on how it goes). And taxes reduce your earnings by around 20% (depending on your tax bracket). And the tax man doesn’t care about the money you lost on inflation.
Keep a few months of after-tax salary on your Savings Account, but never more than that.
Money on a Savings Account is like paying the bank and Uncle Sam a small fee to make you feel secure. (and you have no other choice, you want to feel secure… but you do not want to pay more than needed).
Money and Investing
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